Estimating stock pledge rate using VaR and modified ES model

ABSTRACT

This study mainly focuses on the reasonable determination of the stock pledge rate in the A-share market. Based on the Value-at-Risk (VaR) and modified Expected Shortfall (ES) models, 137 sample stocks were used to measure the pledge rate of stocks. The breakdown times and breakdown probability were used to verify the validity of the two models. Firstly, the results indicate that the adjusted breakdown probability calculated by the two models is less than 5%, the two models are highly reliable in measuring the stock pledge rate. Secondly, the stock pledge rate measured by the modified ES model is more effective compared with the VaR model. Finally, the prediction results of modified ES are still robust under different warning lines and liquidation lines.

KEYWORDS:

• A-share market
• stock pledge rate
• VaR model
• ES model

JEL CLASSIFICATION:

• G10
• G20
• G32

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ VaR 135 and ES_135 are 135% of the warning level under the historical simulation VaR and modified ES models respectively; VaR_120 and ES_120 are 120% of the liquidation line under historical simulation VaR and modified ES models, respectively..